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As WE MOVE from welfare-as-we-knew-it to welfare-as-we-have-never-known-it, an often acrimonious debate is continuing between those who contend that the change will be most effective if the beneficiaries are motivated by a carrot and those who favor a stick. The press simplifies the story by calling the carrot people liberals and the stick people conservatives.

Actually, this is a very old debate. It went on during the years of AFDC (Aid to Families with Dependent Children), and it is going on in our time of TANF (Temporary Assistance to Needy Families). Both sides remain supported by innumerable anecdotal or imaginative reports and by many elaborate sociological studies, complete with chi-squares, regression analyses and multicolored graphs.

Welfare has generally been understood to be temporary, because the economic system has conventionally been understood to be evolving toward perfection. AFDC was envisioned as helping both poor widows and deserted mothers through a personal hard time. Many voters were surprised when it appeared that the distress of millions of families was caused by economic hard times that persisted, not only in the big cities but also in the countryside. Many more voters were angered when the late George Wylie’s Welfare Rights Organization and others, including some government officials, worked to inform distressed families of the help available to them. Still more voters became choleric as careless teenage girls and shiftless older women were said. (although the evidence was scanty) to make a living by producing babies while their male friends used welfare checks to tide themselves over when the drug-dealing or car-jacking business was slow. Hence TANF, with its lifetime limitations on welfare benefits, and the other restrictive provisions of the 1996 law, signed by the President amid a show of determination to fix it when he got a chance.

It does not take much imagination to see that little, if anything, has been accomplished. Let us suppose that there are women willing to make babies in order to stay on welfare. How are we going to stop them? We can, to be sure, reduce or cut off their benefits, but their children, who certainly did not originate their own births, will be the ones most hurt, as has happened in starvation situations in all cultures and all times.

Or are we going to turn children out in the streets, copying the culture of Calcutta? Or shall we take the children away from their mothers and put them, as some politician (I forgot who) suggested, in orphanages-preferably, no doubt, orphanages run for profit? What, then, becomes of family values?

Family values, of course, are only a couple of political catchwords that no one bothers to define. Nevertheless, one must wonder what is so important in our civilization that it requires putting children in orphanages or driving them into the street in order to punish the mothers. And will the presumably selfish mothers even feel the pain of the punishment being meted out?

The most enthusiastic advocates on the draconian side of the debate estimate that a high but unspecified percentage of welfare mothers will respond as intended to the stick approach-that they will seek and perform menial labor for substandard wages. This is nothing for civilized people to be proud of.

Assuming the expectation is correct, moreover, we will still have a considerable percentage of women pursuing their procreative ways. We might have their tubes tied, but the Supreme Court is apt to consider this a violation of the Eighth Amendment’s “cruel and unusual punishment” clause. Amending the Amendment is not likely to appeal either to those upholding the Right to Life or to those defending the Right to Choose-which pretty much covers the voting spectrum. On the other hand, there is evidence that the carrot approach sometimes encourages welfare dependency.

As ALMOST ALWAYS happens in sociology, and far too frequently happens in economics, we are asked what is the: most efficient or cost-effective solution. Efficiency and cost-effectiveness, however, are at best secondary aspects where the lives of people are involved. For instance, the drug problem, however you want to define it, is considered one of the most serious facing America today. The vast majority of voters would probably place it ahead of welfare motherhood, and many would list it as a cause of welfare motherhood. Yet there is a recent example of an efficient and cost-effective solution that not even the most absolute American drug hater proposes we adopt.

For more than a hundred years after the Opium War (1839-42), in which the British forced China to allow the importation of opium, China was the typical case of the drug-plagued land. The opium dens of Shanghai and Canton were celebrated in fact and fiction. Mao Zedong’s People’s Republic wiped out the plague almost overnight. It was very simple. Every apartment house or neighborhood or farm had a committee dedicated to uncovering enemies of the people. Drug users and dealers were designated enemies. A few public trials (denunciations, actually) were held in athletic stadiums, followed forthwith by public executions. Other suspects were given the option of quitting cold turkey or being shot. Formal proof was unnecessary; suspicion was enough to trigger the option.

Despite this well-known bit of recent history, we do not rush to emulate it. We refrain for many reasons. The principal reason is that, with us, crimes deserving punishment must be proved in a court of law.

The Chinese solution was effective because judgment was summary and incontestable. That the sentence was capital speeded things up. A lighter sentence would have required more prisons or more chain gangs or more pillories, and especially more time to demonstrate to everyone that this particular crime did not pay. With us, justice is more important than effectiveness, efficiency or expense.

Although you would never realize it from the way we talk or the way we write in our newspapers and magazines and textbooks, justice is also more important to us in economics than is effectiveness, efficiency or expense. Why else should we have abolished (to take the most vivid examples) slavery and child labor? To be sure, we had to fight a civil war to abolish slavery, and it wasn’t until 1938-eight years into the Great Depression that we were able to get a child labor law through a Southern-dominated Congress and past a states’ rights Supreme Court. But we finally managed to bring about both reforms, and neither one depended on considerations of effectiveness, efficiency or expense.

For many years we were apparently ashamed of what we had done. It was said that slavery had become unprofitable, and that it would have died out anyway, sooner rather than later. It was also argued that most slaves were well cared for because they were worth good money, and that slave labor was really more expensive than free labor. The quasi-Marxian conclusion of these claims was that the true force behind abolition was the profit motive, not the brotherhood of man. No one raised the question of why it was thought necessary to abolish by law, let alone by force of arms, what was economically unprofitable. Perhaps the invisible hand did not quite work the way Adam Smith had said it did.

The child labor problem was not too different. Economists call all labor a “disutility.” Although few defended, say, having half-naked children (and their mothers) scramble on all fours like stunted donkeys to drag carts of coal through constricted mine drifts, market forces did not work against such atrocities because they were cost-effective.

In short, the fundamental economic problems are not solved-do not even exist-on so-called economic grounds. Efficiency and cost-effectiveness are not standards of right conduct. They are not primary rules for the good economy or the good life.

The thing about primary rules of right conduct is that they are not absolute, as 7+5=12 is absolute. They are local, for a time and place. They are historical. For a few obvious examples, we note that only recently has a 35-hour week come to be considered a full-time job. The 40-hour week was a goal 60 years ago, and our forefathers talked of working from sun to sun.

Likewise, what constitutes decent living conditions has changed and continues to change. The first public housing built by the New Deal had to exclude interior plumbing, not because of the cost, but because private housing of the time and place ordinarily lacked it.

Insofar as the length of the workweek and conditions of living are standards, they have nothing to do with either carrots or sticks. It is barbarous to apply the carrot-or-stick metaphor to human beings. Human beings are not a means to an end; we are all ends in ourselves. It is in this basic sense that we are all equal equally absolute and absolutely equal.

Rousseau said the state exists to force men to be free, but such force is vicious if the state does not also guarantee the opportunity to exercise freedom. Workfare as we now know it does not guarantee that opportunity, and so must resort to carrots and sticks to trick or beat donkeys into line.

Workfare will fail to meet the needs of our democratic society until it is guided by these two principles: First, the right of every citizen to make a contribution to the common weal-that is, to have a decent job-is equal to the state’s right to hold him or her to obedience to its laws.

Second, any full-time job that does not provide a decent and honorable living is not worth being done except as a favor or a hobby, as training or as punishment, or in defense of the realm.

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I DON’T want to alarm anyone, but I think it important for us to realize that the United States of America is about to sail into unfamiliar waters. What is more, those waters are inaccurately charted.

Many years ago I had occasion to consult charts of the Aegean Sea, the island pocked body of water between Greece and Asia Minor. From 1522 to 1912 the principal southern islands were occupied by the Ottoman Turks, and from 1912 to 1947 by Italy. I used British revisions of charts originally prepared by the Italian Navy. Scores of tiny islands and mid sea rock formations had notations beside them: “Reported 2.6 mi. north, 1949,” or “Reported 1.9 mi. south, 1948.”

The economic waters we are now entering are at least as badly charted. The years 1947, 1948, 1949, 1951, 1956, 1957, 1960, and 1969 are the only ones since the great Crash of 1929 in which we managed to balance the Federal budget. As we shall see, what happened in those eight years is the diametrical opposite of what is generally assumed, and our misconception is driving us in an unexpected and unhappy direction.

We need to understand this because we are approaching another balanced budget much faster than anyone thought possible. Indeed, the embarrassing fact is that tax revenues are so good in today’s relatively affluent society that the budget would balance itself in a couple of years if Congress just sat on its hands and watched[1].

The universal mantra has been that we must at any cost balance the budget by 2002. We came within two votes of .launching a Constitutional amendment to that effect. I suppose most people have forgotten the reasoning behind the mantra. Forgetfulness, of course, is what mantras, like the Big Lie, are for. No matter.

The various reasons that were given for balancing the budget a couple of years ago appear to have been reduced to one: President Clinton, House Speaker Newt Gingrich and all their economic advisers say that the balancing will lower the interest rate and hence save good citizens money as well as make for prosperity.

Yes, but I seem to remember that six months ago-on March 25, 1997, to be precise-the Federal Reserve Board kicked the Federal funds rate up a quarter of a point, and soon thereafter every other interest rate went up at least that much. What was the budget news then? There was certainly a noisy squabble going on, but was there anyone, inside the Beltway or out, who was proposing to increase the deficit? If no one was even thinking about such a thing, why did the interest rate go up?

We don’t have to reach back as far as March 25 for incongruities. In the midst of the budgeteers’ recent self-congratulations, the Bureau of Labor Statistics of the Department of Labor announced that the official unemployment rate had fallen to 4.8 per cent (it’s since crept up a tenth of a point or two). That prompted a flood of professional prophecies that the Federal Reserve Board would have to (the Board seems never to act of its own free will) raise the interest rate again to keep more people from getting jobs.

And shortly thereafter the International Monetary Fund, well-known for its conventional views, cautioned that “undue delay in tightening monetary policy could undermine the current expansion.”

Look at the crosscurrents we have drifted into:

News about an imminent budget balance, which is supposed to presage prosperity.

News about falling unemployment, which you might think would be an essential element of prosperit

Prophecies about necessarily rising interest rates, which must be bad if it’s good to balance the budget to get lower rates.

I always look forward to the televised versions of these reports, because they often include questions by Congressmen and answers by the Chairman. The Times and the Wall Street Journal usually provide little more than a summary of the Chairman’s prepared remarks. Constant readers may remember my excitement two years ago (“What Greenspan Really Told Congress,” NL, July 17-31, 1995), when I scooped the world with the news that Greenspan doesn’t believe in NAIRU (or a natural rate of unemployment), that he doesn’t think we must have high interest rates in order to sell our bonds, and that he does think the increasing inequality of incomes is the most serious economic problem now facing the United States.

No doubt chagrined by my scooping them, the rest of the media have not noticed my reportage (though I have a videotape of Greenspan’s words). Neither were they moved to fully report Greenspan’s latest testimony, although in the course of it he had a wary yet respectful exchange with Congressman Jesse L. Jackson Jr. of Illinois.

Jackson questioned the wisdom of relying on the official unemployment figures, since they count as unemployed only people who looked for work last week. A better number, Jackson suggested, would include those too discouraged to continue looking for work, those too turned off ever to have looked for lawful work, those working part time when they would rather work full time, and those slogging away at jobs for which they are overqualified. If all these people were counted, Jackson said, unemployment would be nearer 20 million than the officially reported 6 million or 7 million.

Greenspan replied that he did not know enough about the people Jackson mentioned to use them as a basis for policy, but he acknowledged that they exist. His acknowledgment is my scoop for this week. For I submit that an economy incapable of providing proper jobs for 15 or 20 per cent of its work force is not an adequate economy. It may be “prosperous,” but it does not come close to doing what an economy ought to do. So we have a fourth crosscurrent to reckon with as we approach the waters whose charts are questionable.

PRESIDENT CLINTON and Speaker Gingrich and practically the entire economics profession, as I have said, are united in steering us toward a balanced budget on the theory that this will reward us with lower interest rates. A look at the records, however, reveals that in every one of the eight post-Depression years with a balanced Federal budget the prime interest rate (to which most rates we pay are related) went up, not down. We must conclude, therefore, that either our leaders or the records (or both) have lost their bearings. Clinton, for instance, claims credit for reducing the Federal deficit and says it has resulted in lower interest rates. Granted, recent budgets have boasted a reduced deficit. The Republicans, not surprisingly, insist they brought about the reductions, but that’s not what is plainly wrong with the President’s story.

What’s wrong is that although the deficit has gone down in all five years of his watch, the interest rate went up in three of them -1994, 1995 and 1997-and the prime rate is now two full points higher than it was when Clinton took office.

In other words, five years of reinventing government-of “it’s the economy, stupid”; of the end of welfare as we know it; of the end of the era of big government-have brought forth, not a decrease, but an increase of 32 per cent in the prime interest rate. The emperor, his advisers and his loyal opposition may have plenty of new clothes; they just have them on inside out and backward. There is no empirical evidence whatever that a falling deficit causes or inspires or favors or even accompanies lower interest rates.

Nor is there evidence for a contrary causation: A high deficit has not automatically produced high interest rates. Consider the famous years 1981 through 1986, when Ronald Reagan was President and Paul A. Volcker was the Federal Reserve Board Chairman. The prime interest rate fell from 21.5 per cent to 7.5 per cent. Was this the result of a falling budget deficit? Hardly. The deficit more than tripled in those years, and the interest rate went down at an equally record breaking pace.

Conventional economics, incidentally, teaches that high deficits cause high inflation, and that high interest rates cure inflation. Consequently, true believers should expect that inflation soared in the Reagan- Volcker years. Again the records belie conventional expectations. In 1981 the annual change in the Consumer Price Index was 10.3 per cent. In 1986 it was only 1.9 per cent.

In short, the economic waters we are now entering are charted to correlate high deficits with high interest rates and low inflation. A realistic mapping, though, shows that low or nonexistent deficits are not associated with falling interest rates, while high interest rates are commonly associated with high inflation.

The discrepancies between the conventional view of the economy and its recent performance lead me to suggest the future may prove Proust was right in observing that our desires may be fulfilled on condition that they do not bring the happiness we expect of them. We may succeed in balancing the budget, but it is exceedingly unlikely that the interest rate will fall as far as our leaders and advisers expect. Even if the rate should drop a point or two, it is unlikely that business will correspondingly expand. If anything, a balanced budget will act as a constraint on business, in the same way that the drive for a balanced budget has constrained expenditures for maintaining our infrastructure, for improving the lot of the disadvantaged among us, and for nurturing progress in the arts and sciences.

Is there no limit to the deficit that we can sustain? Sure there is a limit. My father advised my wife and me always to stretch a little when buying a home for our family. That way we could, and did, steadily improve our standard of living. Naturally, we had to be able to pay the interest on our successive mortgages. It is the same with a capitalist nation. Capitalism is based on borrowing as much as it can from the future in order to build for the future.

A zero deficit is a confession of a failure of faith in the future, especially when 20 million citizens lack proper jobs.